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Recently, the New York Times published an article titled “When Microcredit Won’t Do.” (Link Here) They coined microcredit, defined as “the lending of very small amounts of money to very poor people to help them invest in things that have the potential to bring income later on,” as the most significant new concept in the field of poverty reduction. Their reasoning for this statement is that the effects of microcredit go beyond the people to which the loans are extended to but in addition, it helps support the economic development of the rural regions that the loan-takers live in.
As the article outlines examples of micro lending, it addresses a problem in micro-lending: how does one sell at a wide-scale (enough to support themselves or their communities) with such small start-up capital. What happens when just handing money to help start a business isn’t enough? One answer to this problem is consignment (the process of a retailer reimbursing the seller once a sale is completed), which puts the risk on the supplier not the retailer. In context, this would almost be like lending products to the people to sell instead of money.
The article gives the example of Soluciones, founded by two Peace Corp volunteers – Greg Van Kirk and George Glickley, which is a microconsignment incubator.
Its entrepreneurs — the vast majority of them women — now travel from village to village selling glasses, water-purifying buckets, solar flashlights, a solar panel that powers a lamp and cell phone charger, eye drops, sunglasses, energy-efficient light bulbs and vegetable seed packets.
They test new strategies and products that are economically viable but also beneficial to the communities they are sold in. For example, reading glasses in otherwise illiterate villages, water purifiers to improve hygiene and health, solar lamps to provide light to impoverished areas and even cookstoves.
The article ends of with a question:
Is microconsignment a system that can deliver these products on a sustainable basis and large scale to people who need them? If so, how?
In my opinion, the answer to the first question is yes. In a way, by lending, products instead of just money for entrepreneurs to utilize as a tool to earn profits, you are removing a hurdle these entrepreneurs may face. This obstacle could come in the form of an inability to produce products themselves due to lack of capital or resources. Additionally, by completing large scale production elsewhere, entrepreneurs can more realistically earn profits and make an economic difference in their community, as opposed to producing on a small scale with a smaller impact. An added bonus is the fact that ventures like Soluciones are not only doing microconsignment but tailoring the products they provide to suit the needs of the region. Therefore, not only can these entrepreneurs make an economic impact but also provide sustainable solutions to more social and cultural problems people in that community face.
The only disagreement I have with this suggestion is how sustainable it is – as much as this method provides members of the community a chance to earn profit (and relays profit back to the lender once the product is sold), it still leaves the entrepreneurs dependent on someone else. Micro-loans are supposed to be start-up funds, until the point that the entrepreneur is self-sustainable. By continuously providing the entrepreneur with product is the consignment provider merely a supplier or a parent-figure that the entrepreneur is dependent on? I suppose it depends on perspective and execution.
What an interesting spin on social entrepreneurship…